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ECB Chief Says Obeys Law, Not Politicians

The European Central Bank has kept its interest rates unchanged at historic lows, shying away—for now—from further monetary stimulus to boost the eurozone economy amid mounting criticism.
The ECB announced Thursday it would leave its benchmark refinancing rate on hold at 0%, DW reported.
At a press conference later in the day, ECB President Mario Draghi drove home once again his case for ultra-loose monetary policy amid mounting criticism from Germany. He said the central bank was ready to use “all instruments available” to push up inflation in the eurozone.
“The governing council will continue to monitor closely the evolution of the outlook for price stability and, if warranted to achieve its objective, will act by using all the instruments available within its mandate,” Draghi told reporters. He added that borrowing costs were to remain at present or even lower levels “for an extended period of time”.
He also announced the ECB would begin the purchase of corporate bonds in June of this year. Draghi brushed aside criticism of the ECB’s current monetary policy, saying “the ECB obeys law, not politicians”.
Last week, German Finance Minister Wolfgang Schauble warned that the ECB’s policy was causing “extraordinary” problems for Germany and was in part to blame for the rise of the right-wing anti-immigration Alternative for Germany party.
On Wednesday, Schauble stuck to his tough stance, saying that “a long period with zero and negative interest rates is not a sensible situation”.
The ECB has been easing policy aggressively, cutting rates deeper into negative territory and expanding asset buys in a bid to prop up inflation, which now stands at zero—far off its 2% target.
Negative rates are hurting Germany’s fragmented and cash-saturated banking system disproportionately, raising the prospect that hundreds of smaller banks, primarily small savings banks, could become unviable.
IMF figures suggest German and Portuguese banks will take the biggest earnings hit from falling interest rates, compressing margins and possibly thwarting lending growth.
The ECB president had made it clear earlier he wanted to see how the two stimulus packages announced since December played out before unveiling any new measures.

Stubborn Adversaries
Draghi has two stubborn adversaries—low inflation everywhere, and low regard in Germany. He’s now extending his offensive on both fronts, Bloomberg reported.
A recovery in credit, and output proving resilient to global shocks, are buttressing the European Central Bank’s argument that the range of stimulus measures it bolstered only last month is working. The ECB president used that evidence to make ground against German critics who say he’s on the wrong track.
After more than four years at the helm of the central bank, Draghi is still fielding persistent attacks from the ECB’s host country, where a public perception of him as a profligate Italian whose low interest rates are killing retirement savings has become part of the political furniture. He fumed that the more critics undermine his stimulus, the more of it he’ll have to do.
“Impatience in the markets and in politics can come up like a geyser sometimes, but the ECB has to continue to be as steady as a rock,” said Torsten Slok, chief international economist at Deutsche Bank AG in New York. “The more it shows up in the data, the easier it is for them to say that their policies are working. The ECB is defending itself and making sure the arguments are solid.”
The 19-nation eurozone has suffered a debt crisis that almost became existential, and had to labor through two recessions in five years before its current growth stint. It’s also because of something over which the ECB has no control, namely slumping oil prices. German Chancellor Angela Merkel later backed the ECB’s independence, while saying a political debate about its strategy is “legitimate.” Draghi also won backing from International Monetary Fund Managing Director Christine Lagarde on Friday, who said in Amsterdam that “we all agree” the central banks should be independent.